President-elect Donald Trump inherits a housing market that looks nothing like it did during his first term.
Affordability, as measured by median home prices and mortgage rates, has worsened markedly and is coloring consumer attitudes about the economy as a whole.
Buying and selling activity has slowed sharply as homeowners remain reluctant to give up the low-interest mortgages they took out until 2022. Existing home sales are on track to hit a near 30-year low in 2024.
Average 30-year fixed mortgage rates are north of 7%, compared to 4.09% at the start of its first term. compared to the beginning.
Even at that price, the average home is selling for $420,400, up 35% from just before Trump’s first term.
The incoming Trump administration has promised to lower mortgage rates and housing prices by initiating mass deportations of illegal immigrants and easing federal regulations on buildings and land use.
But economists and housing experts say sweeping changes are unlikely to be that simple, and some of Trump’s proposed policies, such as tariffs, risk worsening inflation and housing affordability.
“I don’t see how President Trump is going to lower interest rates, certainly not with higher tariffs, deporting immigrants and deficit-financed tax cuts,” said Mark Zandi, chief economist at Moody’s Analytics. :
Pandemic-related supply chain disruptions have increased the cost of many components of home construction, contributing to rapid home price growth in recent years.
Trump’s promise to impose 25% tariffs on imports from Canada and Mexico and an additional 10% on Chinese imports has many economists worried the problem will worsen.
The National Association of Home Builders, a trade group, estimates that 7%, or $13 billion, of materials used in residential construction will be imported in 2023. The industry relies on Canada for most of its lumber, Mexico for limestone and gypsum, which goes into it. is gypsum. , and China for equipment.
Construction workers build a new single-family home on December 6, 2024 in Owensboro, Ky. (AP Photo/Charlie Riedel) ·ASSOCIATED PRESS
Trump has said mass deportations will reduce demand for housing, freeing up more space for citizens.
Although undocumented immigrants need their own places to live, economists say deportations risk further damaging the housing supply because many immigrants work in construction, nearly a third of the construction workforce, according to the NAHB is foreign-born.In California, where the housing crisis is particularly acute, immigrants make up 41% of the workforce.
“The inputs to building housing are materials, labor and capital,” said Stijn Van Nieuwerburg, a professor of real estate and finance at Columbia University’s Graduate School of Business.
“There is a significant risk of cost increases on all three points, making construction more difficult.”
Trump’s favored policies, such as tariffs and tax cuts, could also force the Fed to hold interest rates longer to avoid overheating the economy and general price increases.
Those implications mean mortgage rates could also remain at 7% or more, and homebuilders themselves could face higher financing costs.
Another priority for Trump will be the possible release of mortgage giants Fannie Mae and Freddie Mac from federal protection.
Fannie and Freddie, which support the mortgage market by buying loans and packaging them into bonds sold to investors, have been under government supervision since they nearly collapsed in 2008. During the subprime crisis, the companies’ fortunes improved as the housing market recovered and financial industry groups and investors argued in favor of exiting the arrangement.
Trump took steps to free up businesses during his first term, but ultimately ran out of time to complete the daunting task.
Even this time, any plan is likely to be long-lasting. companies will need time to raise their capital levels to meet regulatory requirements, and any initial public offering of companies will be the largest ever by several orders of magnitude.
Fannie Mae headquarters in Washington, D.C., Aug. 8, 2011. Standard & Poor’s Ratings Services on Monday downgraded the credit ratings of mortgage lenders Fannie Mae and other agencies linked to long-term U.S. debt /Manuel Balce Ceneta) ·ASSOCIATED PRESS
The White House must also balance how to bail out the companies without disrupting the $12 trillion mortgage business.
In conservatorship, Fannie and Freddie have the implicit backing of the US government and share its top credit ratings, allowing them to borrow money cheaply and lower mortgage rates for consumers.
Outside of the conservatorship, it is not yet clear what, if any, government guarantees the companies will have, and any changes could lead to higher borrowing costs. would be “credit negative” for the companies, but the rating firm would have to assess any future financial support they would receive.
Claire Boston is a senior correspondent for Yahoo Finance covering condos, mortgages and home insurance.
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